Risk Management – Derivatives Market

Derivatives Market risk management system
Trade organizer		MICEX-RTS
Central transaction party		RTS CC
Clearing organization		RTS CC
Requirement system for participants		Special Requirements for Applicants and existing Members. Financial Status Parameter Requirements.
Limit System		(1) Price change limit – The maximum allowable price variation from a settled transaction price fixed on a previous trading day, calculated for a specific futures instrument. If the price indicated in a trading order does not come within a current price change limit, the trading system will not accept the order. In circumstances of high volatility, if futures instruments reach the price change limit (a ‘locking’ of prices within limits), two additional limits are calculated – limit 2 and limit 3. Limit 2 and limit 3 are determined by increasing the existing price change limit by the rates set by the MICEX-RTS board. (2) Open position value limit is set by the MICEX-RTS board for each clearing participant in order to limit the risks of his trading positions. (3) Market share limit – an instrument specific maximum allowable net position for participants, for specific instrument types on a trading account and all additional net positions open for it, for the total of net items of one type, on all accounts of all clearing participants for all series of futures instruments of a given type. If, after the completion of a trading order by a participant, the market share limit is exceeded for a given type of futures instrument, the trading system will not accept the order. The value of the market share limit is determined through expert analysis of market stability, determined by the following indicators: - intensity of trades and trading position volumes of participants; - presence and activity of market-makers; - degree of maturity of the market for a futures instruments of a given type. The value of the market share limit for each type of instrument is approved by the MICEX-RTS board.
Deposit System		(1) The pre-deposit of funds (deposit margin) to cover open positions requirements and a real-time checking of incoming trade orders. The deposit margin for a group of positions is determined according to the SPAN methodology using the following parameters: - scanning range; - intracommodity (calendar) spreads; - intercommodity spreads; - delivery margin rates. Deposit margin may be paid in Russian rubles as well as in foreign currency. In accordance with the “Methodology of valuing foreign currency in deposit margin” clearing house sets the following parameters: - internal rate of foreign currency used to value currency contributed; - maximal foreign currency share in the participant’s deposit margin; - minimal level of deposit margin liquidity. Dynamic deposit margin management is allowed during the trading session. (2) Daily revaluation of trading positions and computation of variation margin. (3) Guarantee of position obligation fulfillment within a delivery period by including a delivery margin in the deposit margin.
Fund System		- A Reserve Fund – is created from proprietary funds of the clearing organization (currently – 2 billion Roubles). - A Savings Fund – formed under Federal Financial Markets Service regulation from a two percent surcharge on the total clearing sum received from clearing members by the clearing organization in the preceding month.
Settlement procedure in event of insolvency		A procedure for compulsory liquidation of open positions can be carried out in either the trading session or the clearing session. Priority is given to the liquidation of positions of a defaulter at market prices during the trading session. The presence of the Reserve Fund significantly expands this possibility. In exceptional cases (a total absence of quotes or where the Reserve Fund is inadequate) liquidation is completed in the clearing session by transferring positions to the counterparties. The Participants and the quantity of positions for transfer are chosen by algorithm, minimizing the risk for these participants.
Monitoring	Regarding participants	- Participant compliance with MICEX derivatives market Clearing Rules is checked. - Monitoring is carried out on internal ratings through a score assessment of a number of relevant financial and non-financial indicators of participant activity according to the Methods of defining participant ratings of the MICEX-RTS markets.
Monitoring	Regarding trades	- Trading system checks adequacy of submitted trading orders; - Trading system calculates and controls the following parameters: current foreign currency share in the participant’s deposit margin, current level of deposit margin liquidity of the participant, planned level of deposit margin liquidity of the participant; - Constant monitoring of the trading process and risks arising due to price fluctuations is carried out.